SHENZHEN, China — The intensity of this nation’s tech ambitions are apparent on the sprawling campus of Huawei Technologies, whose youthful employees play hard on basketball courts after working hard to create telecommunications technology for what they hope will be China’s first major global company.
Started 24 years ago as a reseller of low-end telephone equipment, Huawei has evolved into the world’s second-largest provider of telecom and Internet technology, and is considered a national champion by Chinese authorities. While suspected of having ties to the Chinese military by some American national security officials, and accused by others of getting unfair assistance from the Chinese government, the tech conglomerate has become a competitive threat to Silicon Valley giants Cisco Systems (CSCO), Juniper Networks and Hewlett-Packard (HPQ).
Though it has so far failed to land a big deal in the United States because of pressure from Washington, Huawei has become a major force in the global telecom market and is developing high-end Internet technology and other products, such as videoconferencing systems, for businesses and governments.
Cisco CEO John Chambers recently described Huawei as “a very tough competitor over the long term.”
While industry observers believe Huawei, an employee-owned company that reported revenues of $28 billion last year, still lacks the innovative edge of Cisco and other leading tech companies, there is no doubt the Chinese company seeks to become a dominant global player. Nearly half its 120,000 global employees, including about 500 in Santa Clara, focus on research and development.
Huawei, which landed $2 billion in enterprise contracts in 2010, expects to double that this year and reach $15 billion to $20 billion a year by 2015. It is tripling its enterprise unit employees to 30,000 in three years.
It also has carved out a significant share of the market for handsets and tablet computers, and expects to sell 20 million smartphones globally this year.
“Huawei has an excellent chance of becoming the first truly Chinese brand to be a household name around the world,” said Richard Brennan, a Palo Alto native who is an executive in the company’s industry standards department.
Huawei’s headquarters is a far cry from the typical Chinese assembly-line operations like nearby Foxconn, the maker of everything from iPhones to laptops. It’s a cross between a university campus and a resort with living quarters for thousands of workers, as well as swimming pools, basketball courts, a large outdoor karaoke stage and other well-maintained recreational facilities. Employees, whose average age is just 31, are known for working long hours to increase the value of their stake in the company, which is ranked as one of China’s best employers.
“When we started this company, we had nothing. We could only rely on ourselves,” said Daniel Zhong, a manager in Huawei’s global testing center. “We will keep innovating and exploring new markets. “
Huawei has come a long way in less than a decade. In 2003, Cisco filed a lawsuit accusing it of copying Cisco’s software and violating patents, though the dispute was quickly settled because the San Jose company did not want to damage relations with the Chinese government, analysts say.
“They even copied their bugs, for God’s sake,” said Ray Mota, managing partner at ACG Research, a telecom business consulting and services company. “Their products were very, very low-quality. But over the years, they have gotten better and better. They are not quite there yet, but it’s a matter of time. It’s a scary proposition if you are Cisco, Juniper, Alcatel-Lucent.”
Fairly or not, Huawei is viewed by some as a proxy of China’s Communist government. Media-shy founder and Chairman Ren Zhengfei was an engineer in the People’s Liberation Army 25 years ago. Huawei, facing a wall of opposition from some members of Congress and former Commerce Secretary Gary Locke, now the American ambassador in China, has yet to win a contract with top U.S. telecom carriers, even though it supplies equipment to 45 of the world’s top 50 telecoms. U.S. regulators have blocked it from making acquisitions and early this year pressured it to retreat from plans to buy the assets of Santa Clara-based cloud-computing company 3Leaf Systems.
“Huawei has transparency problems,” said James A. Lewis, a cybersecurity expert at the Center for Strategic and International Studies in Washington. “Is it acting on the behest of the Chinese government? If the answer is mumbling, the Americans will assume the worst.”
Critics say the company has benefitted greatly from behind-the-scenes assistance from the government, though Huawei fiercely denies that.
William Plummer, Huawei’s Washington-based vice president of external affairs, says Huawei is being maligned because of fears of a rising China and lobbying against it by U.S. competitors.
“There are always going to be competitors who are trying to stir some fear, smut, some doubts,” he said. “I understand the tension between the United States and China. Huawei is caught up in that rubric. We are a punching bag.”
Plummer is one of a number of Western executives formerly with companies such as Cisco, Intel (INTC), AT&T and Sun Microsystems that Huawei has hired in recent years.
The moves are part of a broader campaign by Huawei to address concerns about its alleged ties to the Chinese military. In February it issued an open invitation for the United States government and anyone else to investigate its businesses operations. It recently released information about the makeup of its board, reducing some of the secrecy shrouding the company.
Huawei has long denied it has ties to the military. Founder Ren left the PLA during a military downsizing and started his company six years later, Plummer said. He dismissed as “malarkey” the accusations that Huawei has received significant financial assistance from the Chinese government.
In June, U.S. Export-Import Bank President Fred Hochberg attributed some of Huawei’s dramatic growth to a $30 billion credit line from the Chinese Development Bank that reduces its cost of capital and offers financing to buyers at rates lower than those of competitors.
Plummer disputed that, saying the credit line was not for Huawei but for its customers, and that those customers received less than $3 billion in export credits to help finance projects, representing just a slice of the company’s sales of $110 billion from 2005 until now, he said.
Analysts say Huawei might allay fears if it opened up more and became a publicly traded company. For now, Huawei has no plans to go public, a spokesman said, but he added: “That’s not to say it won’t happen in the future.”
Huawei, which just hired IBM to advise it on a branding strategy for its varied businesses, wants the world to focus on its technology.
“When you are talking about multinationals, we always refer to IBM, Microsoft, Intel,” said Huawei employee Jessie Pan. “I think Huawei has the opportunity to become one of the first recognizable China-based multinational (tech) companies.”
Contact John Boudreau at 408 278-3496.
Huawei Technologies at a glance
Founded by Ren Zhengfei in 1987, Huawei has grown to into a leading supplier of telecommunications and Internet equipment.
Revenue: Reported $28 billion in revenue last year and $15.2 billion during the first half of 2011, an 11 percent hike from the previous year.
Customers: Does business in 140 countries and has 120,000 employees based at its headquarters in Shenzhen and around the global, including about 500 in Silicon Valley. It provides equipment to 45 of the world’s top 50 telecommunications companies.
Products: Produces everything from routers to tablet computers. The company expects to sell 20 million smartphones in 2011.
Source: Huawei Technologies
